The Origins of Federal Regulation of Advertising: A Bibliographic Essay

 

There is no duty resting upon a citizen to suspect the honesty of

those with whom he transacts business.  Laws are made to protect

 the trusting as well as the suspicious…The rule of caveat emptor

 should not be relied upon to reward fraud and deception.

     - Justice Hugo Black[1]

 

            The period between 1900 and the mid-1930s stands out as a profoundly important era in the development of American advertising.  During this time, the nascent industry adopted innovative persuasive techniques based on new methods of applied psychology, contributed to its first war effort, formed its first professional organizations, and helped launch the modern consumer society.  One characteristic of advertising during these years was the movement to establish the trade as a profession and a reputable participant in economic and social life.  In doing so, the advertising industry staked its claim as a vital component to the economic health of the nation.  As Pamela Walker Laird has noted, it was during this period that budding advertising professionals successfully billed themselves as agents of progress and solidified their place within the rapidly changing economic order of mass production and national distribution.[2]  In order to stake this claim, however, they had to overcome a certain amount of skepticism and unease.  Most notably, they had to distance themselves from the frauds and hucksters of previous decades to “reform” both the practice and public perception of advertising itself; for the first time, they also had to contend with the threat and reality of federal regulation.

            This bibliographic essay outlines many of the key sources that would be most useful for any scholar who wished to engage in historical research on the origins of federal regulation of advertising.  For the purposes of this essay, the discussion of federal regulation will be limited to two broad areas that were of primary importance in the 1900-1930 period: the question of accurate labeling and marketing of packaged foods and drugs and the authority of the Federal Trade Commission to punish false advertising as a method of unfair competition.  The most egregious abusers of the public trust, patent medicine advertisers and dealers in impure or adulterated food products, were the specific target of the 1906 Pure Food and Drug Acts, which in many ways was the “first brush with the law” for the industry.  The Federal Trade Commission, established in 1914 to enforce anti-trust legislation, interpreted its mandate to include regulation of false advertising.  During the next decade and a half, an extended debate among government agencies, consumer groups, manufacturers’ associations, legal theorists, and the advertising industry, sought to hammer out the nature and extent of this new federal power in the marketplace.  For better or for worse, advertisers largely won the day, in the sense that before 1938, federal regulation of advertising was kept to a bare minimum.  More pointedly, regulation which did exist tended to favor the interests of “honest” advertisers and the new agency professionals over the interests of consumers or the public.

History, the Progressive Era, and False Advertising

            The origins of federal regulation tend to be discussed in a cursory manner, if at all, in standard advertising history texts.  Advertising law references generally skim over the early period and focus their attention on the recent past.  And yet, much of the framework of today’s legal atmosphere for commercial speech emerged during the early decades of the 20th century.  Fundamental concepts, such as the distinction between claims of fact and statements of opinion and the legality of “puffery” in advertising, emerged from the common law and various state laws during this period and remain codified in today’s regulatory atmosphere. 

            Like other social institutions, the law develops within a specific historical context; shifts in political power or cultural attitudes can lead to new directions in the legal system.  With this in mind, the origin of federal regulation of advertising is best studied as a product of the Progressive Era, which was a time of at least moderate reform and restructuring in response to the industrialization, urbanization, and modernization of the late 19th century.  In fact, the Food and Drug Acts and the FTC are typically regarded as prototypical Progressive Era products.  So to are the middle class reformers and women’s groups that made up the first consumer’s movement.  The drive for professionalization and self-regulation in the advertising industry are also representative of trends in business life as a whole.  In fact, the professionalization of medicine played a role in the movement against patent medicines.  Advertisers and licensed physicians shared a common interest in removing “huckers” from the marketplace.

            Historical interpretations of the Progressive Era tend to take one of two basic attitudes: a period of dramatic reform that benefited the people in their constant battle against “the interests” or a period of moderate, conservative reform that let “the people” blow off some steam while industry and finance rationalized the marketplace and assumed control over the new regulatory apparatus.[3]  The second interpretation, emerging in the 1960s, has generally dominated the recent scholarship.  Classic revisionist books by Robert Wiebe and Gabriel Kolko formed the foundation of what has proven to be a durable thesis.  Wiebe concluded that, rather than the new regulatory agencies reigning in business, “businessmen now used government as a mechanism for regularizing their affairs.”[4]  The very title of Kolko’s The Triumph of Conservatism makes clear the book’s argument.  The trend outlined in these works and subsequent industry case studies is public anger over real or alleged abuses, protracted debate over government regulation, the formation of new regulatory agencies or legal guidelines, and the general ineffectiveness of these reform efforts in their practical application.[5]  Although no full-length study of advertising history from this perspective has been written, much evidence exists to suggest that federal regulation of advertising follows the same trend.

            Any study of Progressive Era reform and regulation must take into consideration two other hallmarks of the period.  Muckraking journalists are often seen as the “voice” of the people during the period.  Believing that publicity was the key to solving social problems, the muckrakers investigated corruption in politics and business and published spectacular exposes in magazines and newspapers, often urging the public to support increased regulation.[6]  For the purpose of this essay, the most notable muckraker was Samuel Hopkins Adams, author of a pungent series of articles about the evils of patent medicines.[7]  These articles, published mostly in Colliers and reprinted in book form by the American Medical Association, expose the falsity of patent medicine claims; not only were they not effective cures for cancer, obesity, or “weak manhood,” they were often concocted with heavy doses of pure alcohol or drugs like opium.  Another key journalistic advocate of the anti-patent medicine movement was Edward Bok, editor of the powerful Ladies’ Home Journal.  Bok editorialized against the fraud and commissioned Will Irwin to write a series of articles attacking the nostrums’ false claims.[8]   Although not a critique of false advertising per se, muckraking articles attempted to arm consumers with facts that could be used to see through fraudulent claims, both on labels and in advertisements. 

            Consumers themselves, due in part to muckraking exposes, became active during the Progressive period.  Although antecedents of the consumer movement can be traced back to the period after the Civil War, there was little organization until the early 20th century.  Moreover, advertising was the primary target of their anger.  Of course, until the 1900s and 1910s, as Pamela Walker Laird, Susan Strasser, and Daniel Pope have noted, most advertising was generated by the manufacturing company itself rather than an advertising agency.  Purveyors of fraudulent medicines or impure food products were responsible for both the manufacture and marketing of their products, and in many ways should be seen as the great innovators in national marketing.  Sara Stage’s study of Lydia Pinkham and her vegetable compound is the best case study of this aspect of the development of national advertising.  In any case, consumer anger over fraudulent advertising intermingled with anger over the deceptive and dangerous products themselves and is hard to separate out for specialized study.  Lorine Goodwin’s study of the coalition of middle class civic groups who led the movement for pure food and drug laws makes this clear.  This problem emerged too when legislators attempted to craft legislation, as will be noted later.  The early consumer movement was the subject of a lot of scholarship in the 1970s, partially because of a resurgence of consumerist attitudes and partly because women played a prominent role and historians have sought to explore previously neglected areas of public life.  These reform groups, like the National Consumers’ League, tended to be multi-faceted, with consumer issues blending with temperance, suffrage, prison reform, and other “women’s issues.” 

Although the bulk of this research focuses on the Depression period and the establishment of the first product testing groups, there is no question that consumer issues were in the minds of progressive reformers and that advertising-related concerns motivated some of the period’s legal restructuring.   This is a ripe area for additional research, and would benefit from an examination of sources suggested in this essay.

            Advertising practitioners themselves also organized during this time period and, to at least some degree, can be seen as a part of broader Progressive Era trends.  As Roland Marchand and Pamela Walker Laird have made clear, advertising agencies emerged in the 1910s and 1920s to dominate the creation and placement of ads.  With this new role came all of the negative public opinion against deceptive advertising, which explains the effort to create a code of ethics, establish trade groups, and devise university training programs.  Along side this grew what is known as the Truth in Advertising movement, an industry sponsored self-regulatory organization.  The group emerged out of various local and national advertising clubs and the Printers’ Ink model statute.  John Romer, editor of the trade magazine Printers’ Ink, had a lawyer draw up a statute that defined illegal advertising and made certain violations a misdemeanor.[9]  The magazine and ad clubs crusaded for the passage of this new law by state legislatures.[10]  Thirty two states eventually adopted some version of the law, which has generally has been seen as ineffectual because it only applies to statements of fact.  As the “reason why” advertising of the pre-World War I period was overtaken by more emotional and figurative appeals, the factual truth or falsity of statements was frequently irrelevant to the deceptiveness of the ad itself.  Only those advertisers engaged in outright lying could be guilty, while more reputable advertisers remained free to play with the truth in more imaginative ways.  Daniel Pope’s The Making of Modern Advertising has the best discussion of this topic.  In any case, the advertising industry participated in the debate over regulation in a way that deserves more examination because it appears to fit into the broader trend of Progressive Era regulation evident in other industries.  The effort toward industry standards and self-policing sought to forestall more onerous government intervention and deflect consumer criticism as much as possible. 

The Law and False Advertising

            One area of potential interest to scholars studying early advertising regulation is the heavily contested fight over pure food and drugs legislation.  Although various bills had been debated in Congress during the late 19th century, no satisfactory legislation could be passed until 1906.  The food manufacturers in particular used their influence to forestall dramatic legal burdens; consumers, muckrakers, and government officials worked from the opposing side to lobby for action. James Harvey Young’s Pure Food and Clayton Coppin and Jack High’s The Politics of Purity best examine this legislative struggle.  Donna Wood has demonstrated how food interests came to back the final language of the law because it was seen as serving their “strategic interests.”[11]  Critics of patent medicines and adulterated foods had two goals in mind as they agitated for a legal solution.  First, they wanted the products themselves either made safer or removed from the marketplace.  To a lesser degree, they also wanted Congress to clamp down on the clearly deceptive marketing practices that allowed these products to be profitable.  To progressive reformers, rational consumers would never purchase dangerous or inferior products unless they were being deceived.  The degree to which false advertising was a clear target in the minds of consumer groups and other reformers needs additional study.  The end result of the Pure Food and Drug Act pleased advertisers, as indicated by trade magazine commentary.  The final version of the law said almost nothing about advertising, and the only legal requirement related to marketing was that any list of ingredients on the product label had to be accurate.  There was no provision to force the manufacturer to disclose the actual contents of the package or bottle. 

            Today the Federal Trade Commission is the agency with the most widespread responsibility for regulating advertising.  However, there is little evidence that the agency was created with any authority to do so.  Established in 1914 to enforce anti-trust, legislation, its jurisdiction over false and misleading advertising evolved over time.  Section 5 of the FTC Act of 1914 merely says that the new agency had the power to stop “unfair methods of competition” and this should be read in the context of anti-trust and anti-monopoly concerns.  Gradually, however, the agency came to believe that false and deceptive advertising was a means of unfair competition; fraudulently attracting customers through false advertising draws business away from competitors.[12]  In an era when government involvement in the economy was new and distrusted, it is no surprise that the FTC faced many legal challenges as it sought to broaden its original mandate.  In fact, G. Cullom Davis argued in the early 1960s that the FTC was itself a victim of the Republican rollback of regulation in 1925 under new policies and the leadership of the conservative William E. Humphrey.[13]  To be sure, the agency only gradually came to be seen as a champion of consumer rights instead of a necessary evil that policed the rights of competing businesses in the marketplace.[14]  It wasn’t until 1938 that the Wheeler-Lea Amendment to the original act explicitly granted the agency the right to regulate false advertising. 

            The best secondary source on the FTC and false advertising remains Ivan Preston’s The Great American Blow-up, in which he traces the development of FTC authority and the way the agency has adjudicated various trade disputes.  This book, and his more recent The Tangled Web They Weave, is highly critical of the FTC, especially for its rulings on puffery and other forms of exaggeration.  Another useful, and less argumentative, book is Honesty and Competition: False Advertising Law and Policy Under FTC Administration, which is unlike some of the other books on advertising regulation in that it traces the development of policy and interpretation back to the inception of the FTC.  The FTC annual reports, published yearly by the Government Printing Office are invaluable primary sources.  These increasingly detailed reports give a thorough summary of the agency’s activities during the previous fiscal year, including, at least in the early years, a list of all FTC actions and a brief discussion of all court cases in which the agency took part.  It is possible to trace the rising prominence of false advertising as a concern in the agency’s day to day operations.  By the 1930s, the FTC was issuing dozens of cease and desist orders in fraudulent advertising cases of different kinds each year.  A few of these cases, which are discussed below, reached the court system and served to delineate the agency’s jurisdiction and interpretation of “unfair methods.”

            The best way to study the impact of the Federal Trade Commission is to examine its rulings in false advertising complaints and the court cases which arose from them.  The agency was involved in literally hundreds of legal actions between 1914 and the mid-1930s, but several of the more important decisions deserve brief mention here.  The constitutionality of the FTC itself was resolved in 1919.  Sears and Roebuck admitted that it was falsely advertising that its competitors were cheating the public, but argued that the FTC had no authority to make this illegal; the 7th circuit court disagreed, and said that the agency could prevent “deception of purchasers.”[15]  In 1920, however, the Supreme Court decided in FTC v. Gratz that the court system was the final authority in determining “unfair methods of competition.”  But the Supreme Court ruled in 1922 that the agency did have authority to regulate false advertising in general, in this case the practice of using deceptive product names.[16]  The 1931 Raladam decision, in which the Supreme Court overturned an FTC order that a patent medicine manufacturer place a warning label on its package, seemed to limit the jurisdiction of the agency and attracted a great deal of criticism from critics of advertising.[17]  The Wheeler-Lea Amendment of 1938 finally cleared up the question of FTC authority in false advertising by specifying this function directly in the law itself, even though the precise meaning of false or deceptive remained elusive.

            One issue was the legal meaning of deception.  Did the FTC have to prove that an advertisement deceived somebody?  If so, how many people had to be deceived?  And did these people have to be “reasonable” or not?  Common law had traditionally required that some evidence of actual deception or harm be demonstrated, but the FTC felt that it was authorized to penalize ads that merely had the tendency to be deceptive.  In the 1934 case of FTC v. Algoma, the Supreme Court decided that “innocence of motive” was not sufficient evidence that an ad was not deceptive.  Just saying that you did not intend to deceive anyone was not a solid defense. 

            Puffery, on the other hand, proved harder to eliminate, mostly because the courts tended to think that no reasonable person would believe them.  For the most part, statements of opinion and exaggeration fall outside of the FTC’s jurisdiction, regardless of their effectiveness or tendency to deceive.  Early cases that shaped this precedent include FTC v. Universal Battery (1919) in which the courts decided that nobody would ever believe a battery would “last forever,” and John C. Winston v. FTC (1925) in which an appeals court held that no intelligent person would believe a “free” offer from an encyclopedia salesman.  The case cited at the beginning of this essay, FTC v. Standard Education Society, seemed to indicate that the Supreme Court was interested in protecting the “ignorant man” and broadened the FTC’s ability to reign in claims that might seem on the surface to be clearly false, although the question was far from solved.  The case of L.B. Silver v. FTC, decided in 1923, preserved the right to make almost any sort of statement of opinion in an advertisement; so long as the advertiser honestly held that opinion, there was nothing wrong with telling the world about it.

            This essay is meant to be suggestive of the kinds of resources that are available for the study of early federal regulation of advertising.  A great deal of solid scholarship has emerged in this general area, but much more work remains to be done.  With the notable exception of studies of the role of women in consumer groups, these issues have largely been neglected in recent years, as the dates in the bibliography make clear.  The place of advertising in the minds of Progressive Era reformers, for example, is unknown.  To what degree were they concerned with false advertising and to what degree were they angered by the fraudulent products themselves?  Why didn’t the Pure Food and Drug Act say anything about advertising?  Did those who voted for the FTC Act in 1914 intend that it would regulate advertising?  The relationship between federal regulation and action in state legislatures and courts, like the Printers’ Ink statute, also needs to be examined before any realistic sense of the legal environment of advertising can be determined.  Did advocates of the Truth in Advertising movement or others in the industry have any influence with the FTC?  It appears that there was some contact, but does this mean that the agency fell captive to the industry it was charged to oversee?  One thing that is clear is that many Americans remain unhappy and believe advertising to be deceptive and manipulative.  One way to understand this lingering unrest is to study the origins of regulatory policy and to trace its development, both in terms of historical trends from which it arose and the court decisions which have given it shape over the years.


 

[1] FTC v. Standard Education Society, 302 U.S. 112 (1937)

[2] Pamela Walker Laird, Advertising Progress: American Business and the Rise of Consumer Marketing, (Baltimore: Johns Hopkins University Press, 1998), 6.

[3] See Blaine A. Brownell, “Interpretations of Twentieth Century Urban Progressive Reform,” in Reform and Reformers in the Progressive Era, David R. Colburn and George E. Pozzetta, eds.  (Westport, Conn.: Greenwood Press, 1983) for a short but cogent discussion of this scholarship.

[4] Robert H. Wiebe.  Businessmen and Reform: A Study of the Progressive Movement (Cambridge: Harvard University Press, 1962), 5

[5] See Donna J. Wood, Strategic Uses of Public Policy: Business and Government in the Progressive Era (White Plains, NY: Pitman Publishing Inc., 1986) for a similar interpretation of the Pure Food and Drug Act and manufacturers of commercial foods.

[6] See for example Louis Filler, Muckraking and Progressivism in the American Tradition (New Brunswick, N.J.: Transaction Press, 1996) on the reliance of progressives on legal solutions when moral indignation failed to solve the problem.

[7] See James Harvey Young, Toadstool Millionaires: A Social History of Patent Medicines in America Before Regulation (Princeton: Princeton University Press, 1961) for the best history of this phenomenon.

[8] Bok’s editorials ran in LHJ in the May 1904, November 1904, March 1905, April 1905, September 1905, and February 1906 issues.

[9] John Irving Romer, “Legal Repression of Dishonest Advertising,” Printers’ Ink, 16 November 1911.  The model statute was proposed in the 23 November issue, along with a review of current law by H.D. Nims.

[10] See H. J. Kenner, The Fight for Truth in Advertising (New York: Roundtable Press, 1936) for an insider account of the group’s activity and effectiveness.  This is the only specific book on the organization.

[11] Donna J. Wood, “The Strategic Use of Public Policy: Business Support for the 1906 Pure Food and Drug Act,” Business History Review 59 (Autumn 1985): 403-432.

[12] Milton Handler, “The Jurisdiction of the Federal Trade Commission over False Advertising,” Columbia Law Review 31:4 (April 1931), 527.

[13] G. C. Davis, “The Transformation of the Federal Trade Commission, 1914-1929,” Mississippi Valley Historical Review 49:3 (December 1962): 437-455.

[14] Richard S. Tedlow, “From Competitor to Consumer: The Changing Focus of Federal Regulation of Advertising, 1914-1938,” Business History Review 55:1 (Spring 1981): 35-58.

[15] Sears, Roebuck v. FTC, 285 F. 307 (7th Cir., 1919)

[16] FTC v. Winsted Hosiery, 258 U.S. 483 (1922)

[17] FTC v. Raladam, 283 U.S. 643 (1931)

 

 

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